Noted for January 6, 2013

Greg Ip:Cliff? What cliff?: "The Fed is currently buying $85 billion worth of Treasury and mortgage backed bonds per month via quantitative easing…. Leaving aside members who wanted to stop QE right away, the remainder 'were approximately evenly divided between those who judged that it would likely be appropriate for the Committee to complete its asset purchases sometime around the middle of 2013 and those who judged that it would likely be appropriate for the asset purchases to continue beyond that date'. So the median member probably wants to stop between the middle and end of 2013…. [T]he median dealer… [thinks] GDP would only grow 2.1% in 2013, fourth quarter to fourth quarter, whereas FOMC members thought it would grow 2.3% to 3%, a strangely upbeat forecast given their own, and the Fed staff’s, concern about fiscal drag. If the Fed once again proves itself too optimistic, the case for further stimulus will remain relatively firm through 2013. Yet there is a less benign scenario: that growth remains disappointing, but QE stops anyway. Fed officials have always predicated more QE on its benefits exceeding its costs. By the end of 2013 the median Fed member may be worried enough about the impact of zero rates on risk-taking, the Fed's growing ownership of the bond market, and the size of its balance sheet to call a halt to QE even if an economic case for more remains. With fiscal policy now turning decisively contractionary, America had better hope the animal spirits of business have revived enough for growth to continue without the help of policymakers."

Greg Ip:Cliff? What cliff?: "The Fed is currently buying $85 billion worth of Treasury and mortgage backed bonds per month via quantitative easing…. Leaving aside members who wanted to stop QE right away, the remainder 'were approximately evenly divided between those who judged that it would likely be appropriate for the Committee to complete its asset purchases sometime around the middle of 2013 and those who judged that it would likely be appropriate for the asset purchases to continue beyond that date'. So the median member probably wants to stop between the middle and end of 2013…. [T]he median dealer… [thinks] GDP would only grow 2.1% in 2013, fourth quarter to fourth quarter, whereas FOMC members thought it would grow 2.3% to 3%, a strangely upbeat forecast given their own, and the Fed staff’s, concern about fiscal drag. If the Fed once again proves itself too optimistic, the case for further stimulus will remain relatively firm through 2013. Yet there is a less benign scenario: that growth remains disappointing, but QE stops anyway. Fed officials have always predicated more QE on its benefits exceeding its costs. By the end of 2013 the median Fed member may be worried enough about the impact of zero rates on risk-taking, the Fed's growing ownership of the bond market, and the size of its balance sheet to call a halt to QE even if an economic case for more remains. With fiscal policy now turning decisively contractionary, America had better hope the animal spirits of business have revived enough for growth to continue without the help of policymakers."